TEMPO.CO, Jakarta - Institute for Development of Economics and Finance (Indef) Head of Center for Innovation and Digital Economy Nailul Huda explained why dozens of start-up companies in Indonesia have initiated layoffs (PHK) recently.

Nailul argued that this condition was triggered by the high cost of funds, which has driven away the interests of investors. The high cost of funds itself is caused by the current high rate of inflation in the world, causing the benchmark interest rate to rise, especially in developed countries.

"As a result, the cost of funds will tend to increase which will eventually reduce investment," Nailul said to Tempo on Monday, October 17, 2022.

With the lack of investment, Nailul explained, companies cannot expand the market and tends to reduce production due to dropping demands caused by high inflation. As a result, startups that still rely on capital find it difficult to progress.

"Rationally, companies will reduce the number of employees to survive. In addition, in the startup business, funding has been very tight this year," Nailul said.

This situation has pushed investors to be more selective in placing their money in digital startups as they expect faster returns than they used to. Nailul said that investors in the past would not mind seeing yields achieved in the 10th year, which differs from the current fast-paced nature of the industry.

Citing Bisnis.com, a number of digital companies in Indonesia had initiated mass layoffs that comprise 16 companies: Tanihub, SiCepat, LinkAja, Zenius, JD.ID, Mobile Premier League or MPL, Line, Beres.id, Pahamify, MamiKos, Shopee, Tokocrypto, Xendit, Carsome, Fabelio, and Bananas. .

Throughout the current year, there have been 950 layoffs by startups globally as startups are currently struggling to face the "tech winter."

ARRIJAL RACHMAN

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